Nunez Report

Monday, November 14, 2011

Berlin Prepares for Possible Greek Exit from Euro Zone

The German government is preparing for Greece's possible exit from the euro zone in the event that the country's new government decides not to continue with the previously agreed austerity programs. Experts at the German Finance Ministry have been simulating a variety of scenarios based on different assumptions, SPIEGEL has learned.

A so-called baseline scenario is based on the expectation that the situation does not get too bad. Under this scenario, Greece's exit from the monetary union could even contribute to the strengthening of the euro zone in the long term, following an initial period of turbulence. The thinking goes that the currency union could be more stable without its weakest member.

Admittedly, peripheral euro-zone members like Spain and Italy would still face challenges, but the assumption is that they would be better able to tackle their problems without the additional burden of the Greek crisis. According to the assessment of German government experts, these countries may currently be struggling to get access to money, but unlike Greece they are not close to insolvency.

Under the Finance Ministry experts' worst-case scenario, developments in the euro zone would be less favorable. In this case, Italy and Spain would find themselves in the crosshairs of the global financial markets, and their borrowing costs would rise. In this simulation, the European backstop fund, the European Financial Stability Facility (EFSF) would be forced to supply those countries with fresh money. For this to succeed, the experts argue, the EFSF should be expanded as quickly as possible so that it has an effective lending capacity of €1 trillion ($1.4 trillion).

Vicious Circle

In addition, the government experts also looked at a so-called worst-worst-case scenario. In this model, Greece's new currency would dramatically devalue against the euro. That would have the positive effect of making the country's exports cheaper, but the negative effects would outweigh the benefits. The country's national debt would rise despite a haircut, because Greece's debts would still be denominated in euros. The country's credit rating would be immediately downgraded again, and Greek companies would struggle to get access to money because the country's banks would also be cut off from international capital markets.

Many firms would go bankrupt because their debts would also be denominated in euros, with the result that many more workers would lose their jobs. Domestic consumption would collapse, aggravating the downturn. The country could take decades to free itself from this vicious circle, and other nations might also be drawn into the vortex. The German government experts do not, however, consider this scenario to be the most likely one.

Spiegel

Goldman Sachs adviser appointed as new Italian prime minister

ROME – Italy’s president appointed former European Commissioner Mario Monti on Sunday to head a new government charged with implementing urgent reforms to end a crisis that has endangered the whole eurozone.

After a frenetic weekend during which parliament passed the reforms and Prime Minister Silvio Berlusconi stepped down to the jeers of hostile crowds, President Giorgio Napolitano asked Monti to form a government, expected to be composed largely of technocrats.

The respected economist, made a life Senator last week, said he would work urgently to form a government and is likely to name around 12 ministers within days.

“I intend to fulfil this task with a great sense of responsibility in the service of our country. In a moment of particular difficulty for Italy, in a turbulent situation for Europe and the world, the country needs to meet the challenge,” Monti said after his nomination.

“We owe it to our children to offer them a future with dignity and hope,” he added.

A process that normally takes several days or weeks was completed over the weekend as Napolitano raced to restore market confidence, which collapsed disastrously last week.

After nominating Monti, the president said that Italy must make an extraordinary effort to overcome the crisis and to restore the trust of investors and European institutions.

Italy’s borrowing costs soared to unmanageable levels last week, threatening a Europe-wide financial meltdown.

Markets calmed down at the end of the week once it became clear that Berlusconi would go and Monti would take his place. Rome will watch on Monday to see if the formal nomination will continue the positive effect on markets.

If Monti manages to secure enough backing in parliament, he will implement reforms agreed by Berlusconi with eurozone leaders to cut Italy’s massive debt and revive a chronically stagnant economy.

There are clear signs that he will face problems, with Angelino Alfano, secretary of Berlusconi’s PDL party, saying there was “huge opposition” in its ranks to a Monti government.

Alfano said after meeting Napolitano on Sunday afternoon, however, that the party — which has been badly split by the crisis — would support Monti.

National Post

Iran loses top missile expert in explosions sparked by failed bid to fit nuclear warhead on Shahab-3

Moghadam, head of Revolutionary Guards (IRGC) missile development and sections of its nuclear program, was killed in one of the two consecutive explosions that hit two IRGC bases 46 kilometers west of Tehran Saturday, Nov. 12. The official fatality figure is 32. Fourteen hours after explosions blasts could still be heard and fires raged. DEBKAfile's exclusive sources report the bases are located in Malard, a town in the Shahryar district. The Moadarres facility was the first to be hit, while the second and bigger blast occurred at Amir-al-Mo'menin.

Their force was such that the Iranian Red Crescent rushed 45 ambulances to the two facilities plus 23 buses converted to first-aid vehicles and a helicopter to evacuate the critically injured.

However, only six rescue workers were given access to the Moadarres base and none were permitted to enter Amir-al-Mo'menin because of the facility's sensitivity.

Fourteen hours after the explosions, the blasts continued and fires raged. Surrounding streets were closed and reporters kept away from the scene.

Our sources report increasing evidence that the first explosion was caused by a failed effort to mount a possible nuclear warhead on a Shahab-3 intermediate-range missile.

It was powerful enough to shatter windows and damage shops in Tehran. People gathering on street corners wondered if Israel had attacked Iran's nuclear sites or destroyed Revolutionary Guards missile bases. They recalled Supreme Ruler Ayatollah Ali Khamenei's threat Thursday, Nov. 10 to take the war to the streets of Tel Aviv if Tehran was attacked.

IRGC spokesman, Brig. Ramedan Sharif, sharply denied what he said was speculation that the military base was linked to Iran's nuclear program. "This blast is not related to any nuclear tests," he said in response to widespread rumors. He insisted the explosion had occurred at an ammo store which was part of the Guards' "self-sufficiency" system, a term they apply to their munitions plants and the factories manufacturing missile components.

The Iranian authorities, after raising the fatality figure to 32, withheld information on the injured, most of which where transferred to IRGC rather than civilian hospitals. Some may have been foreign engineers or scientists whose presence Tehran is anxious to conceal.

The Emergency Council which deals with extraordinary happenings liable to affect the regime's stability met in emergency session Saturday night.

Earlier Saturday, DEBKAfile reported on the two huge explosions at two separate military bases west of Tehran killing dozens of Iranian Revolutionary Guards (IRGC), wounding many more and trapping an unknown number under rubble.

In Tehran, 40 kilometers away, windows were shattered and damage caused vehicles and shops. The blasts were heard in Tehran's center.